Are fixed deposits and mutual funds same?

In India, banks fixed deposits are one of the easiest way and most commonly preferred way of investment. Fixed deposits (FD) are considered as a much safer option compared to other investments. Term deposits can be of two types: fixed deposits and recurring deposits.

Investment options

Fixed deposits are a onetime investment option where you will devote all your funds at a single time. If you opt for recurring deposits, you will have to invest your funds regularly over a period of time. The procedure of the fixed deposit is very easy and it is considered extremely secure.

Whereas, mutual funds allow many investors to invest in stock, bonds, etc. In case you wish to invest money in a mutual fund, it’s important to seek advice from a fund manager as he can help guide you in the process. As the mutual fund is an open-ended investment it allows many new investors to invest in it. Mutual funds also give out shares to the new investors.

Suppose you are planning to invest a huge sum of money and accepting higher returns in future and you aim to carry less risk while investing and also wish to have a Safe Avenue. Along with this, you also wish to have healthy returns within the span of 5 years and also want to see 8%-9% of return rate.

If such is the case you have only two options left in hand, you either can opt for fixed deposits or go for mutual funds. These options are the perfect to go for if you have the above list. But the thing you should remember here is that they both come with their advantages and disadvantages.

If you are new to the investment world, you can get confused while investing your funds about which option to opt for as they both might seem same.  Here is how they differ and what to opt for.

Choosing between an FD or a mutual fund

Fixed deposits can be a much safer option to opt for if you are seeing a low-risk involvement. Whereas mutual funds can be a risk as it depends on market conditions.  The interest rates on fixed deposits also differ from bank to bank and depend on the amount you wish to invest plus the tenure of your investment but, they have a fixed rate of interest which does not change irrespective of the market conditions. Mutual funds interest rates, on the other hand, keep on changing according to the market condition, which may result in giving you less or more returns at times.

It’s difficult to withdraw funds from fixed deposits as you may have to break your FD account. Withdrawing also involves paying penalty to the banks and makes your interest rates low. On the other hand, a mutual fund does not restrict you from withdrawing funds, instead, you are free to withdraw the amount you want.

Investing in fixed deposits can make you pay more tax if you are closing. Whereas, the tax payment depends on the tenure of your investment. You may also face loss if there is an inflation in the coming years by investing in FD. While mutual funds are totally opposite, though they have high risk involved. As they are managed by professional fund managers, who protect as well as looks over the growth of your investments.

But fixed deposits can be much safer to invest in as they are not depended on the market condition. If you go for mutual funds it may happen that you would continuously earn loss according to the market conditions.

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